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- Disallowance of interest claim for delayed payment - Application of mercantile system of accounting - Interpretation of section 43B - Allowability of interest on delayed payment as a deduction Analysis: The case involves an appeal by the revenue regarding the disallowance of an interest claim for delayed payment by the assessee. The dispute arose when the State Electricity Board imposed a demand on the assessee for previous years, leading to interest charges of Rs. 79,003 for late payment. The Assessing Officer disallowed this amount as it remained unpaid at the year-end, despite being provisioned for in the accounts. The ld. CIT (Appeals) allowed the deduction, citing the mercantile system of accounting followed by the assessee. The department challenged the decision, arguing that the interest was part of a statutory liability and should only be allowed upon actual payment, invoking section 43B. The ld. counsel for the assessee contended that the interest was compensatory in nature and should be deductible as per the accounting system followed. The tribunal noted the precedent set by the High Court and the Supreme Court, emphasizing that interest on delayed payment of statutory liabilities is integral to the liability itself. The tribunal rejected the assessee's plea, concluding that interest on delayed payment must be allowed only upon actual payment of the liability. It highlighted the rationale behind section 43B, which aims to prevent assessees from claiming deductions without fulfilling their statutory obligations. Therefore, the tribunal directed the restoration of the Assessing Officer's order, disallowing the interest deduction. In summary, the tribunal upheld the revenue's appeal, emphasizing the necessity of actual payment for the allowance of interest on delayed payments related to statutory liabilities. The decision reaffirmed the importance of fulfilling statutory obligations before claiming deductions, in line with the provisions of section 43B.
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